The budget in its entirety will be released in mid-January with more detail on revenues and specific program cuts.   The greatest threat to agriculture is the proposal not to fund Williamson Act subvention payments to counties of $34.7 million.  The fear is that if counties fail to receive the subvention payment, they may initiate the process of canceling these contracts resulting in increased property taxes to farmers and ranchers.  Preliminary indications from administration staff indicate that additional California Department of Food and Agriculture, Cal EPA and Natural Resources Agency programs are generally not impacted. 

A mentioned above the Williamson Act is facing elimination.  CAWG and many other agricultural and environmental groups are fighting to maintain the program.  A major argument in favor of the program - besides its enormous benefits to our food supply and the environment - is the potential economic fallout if it's eliminated.

The California Constitution (Art. XIII, § 3) provides a "Homeowners' Exemption" of $7000 of the full cash value when a dwelling is owner occupied as his/her principal residence. Section 25 of Article XIII requires the Legislature to provide, in the same fiscal year, reimbursements to each local government for revenue lost because of the homeowners' exemption.
 
Thus, the state is constitutionally mandated to reimburse cities and counties for revenues lost due to the homeowners' exemption at a rate of $70 per home ($7000 x .01).
 
The Williamson Act currently protects 16,000,000 acres of agricultural and open space land from residential subdivisions. If just ten percent of this enforceably restricted land were converted to homes at five units to the acre, the state would be required to pay an additional $560M in the Homeowner's Property Tax Relief subvention. (16,000,000 x .10 x 5 x $70 = $560,000,000) This would more than double the entire Homeowner's Property Tax Relief subvention and put it over $1 billion. So by eliminating the $34.7M in Williamson Act subventions ($39.1M x .10), the state would actually lose hundreds of millions of dollars. Furthermore, this doesn't even consider the potential significant negative impact on the $36B in farm gate value and its contribution to the gross state product or the impact on the state's food supply and it cost to our citizens.
 
The Legislature and the Administration must seriously consider all of the ramifications that would result from the elimination of the Williamson Act subvention funding.

The second half of calendar year 2008 saw remarkably sharp declines in nearly all global markets.  Wheat prices declined 50 percent from their highs, freight indices dropped more than 90 percent, crude oil fell over $100 per barrel and the S&P 500 dropped 36 percent to a multi-year low. Looking ahead to 2009, here are a few key variables wheat buyers will want to monitor.

Global wheat stocks are down considerably after production deficits in seven of the last ten years. In fact, even though carry-over stocks are projected significantly higher this year, the stocks-to-use ratio is up only slightly from last year's record low and is well below the ten-year average. The current stocks-to-use level provides a very small cushion for marketing year 2009/10 should production problems arise. This leaves wheat prices susceptible to evolving production developments through the planting and harvest cycle, which could result in continued price volatility - and that will affect planting decisions.

Investment capital in wheat futures declined significantly in 2008 as investor redemptions forced index funds to liquidate futures. However, the Commodity Futures Trading Commission reports that index funds still hold 47 percent of open interest long positions in Chicago Board of Trade wheat contracts compared to only 22 percent for corn and 27 percent for soybeans. As a result, wheat prices are vulnerable if speculator liquidation continues in 2009.

As a response to a loud call to improve convergence (the expected narrowing of cash and futures prices leading up to contract delivery months) by commercial risk managers - in part because of the growing influence of index funds - the CME Group initiated specification changes to their soft red winter (SRW) wheat contract. The initial response adjusts the storage rate; adds delivery points; and tightens the vomitoxin specification. The CME recently announced plans to limit the number of grain shipping certificates and warehouse receipts that noncommercial firms might hold in an effort to improve the effectiveness of hedging and other risk management strategies.    

Exploding biofuel demand has dramatically altered the relationship between energy and crop prices. The sharp rise in crude oil prices over the past few years, in part, favored ethanol production, which in turn expanded demand for corn in the U.S. Corn competes for planted area with wheat and other crops and that strengthens the price link between crude oil and grain. Current U.S. government biofuels mandates suggest the demand for corn will stay strong at least in the near-term. Interestingly, just this week, Monsanto filed its U.S. regulatory data package for drought-tolerant corn seed, a technology that has the potential to expand the corn/wheat battleground to dryland fields where wheat is the dominant crop.

After declining for nearly six years amid record low interest rates and a growing trade deficit, the U.S. dollar started to rebound in late 2008. A rising dollar makes U.S. commodities less price-competitive in the export market. No one can accurately predict how the expected, but still unspecified, U.S. economic stimulus effort might affect the dollar's value. More clear is the need for wheat buyers to carefully watch the results unfold.

More than six months after the 2008 Farm Bill was finalized, USDA appears to be moving forward with farm program implementation in earnest.
 
USDA released a statement late in the day the Friday before Christmas indicating that sign-up for the direct and counter-cyclical program would begin Dec. 22, with a June 1 deadline. The same release said distribution of advanced direct payments would begin before the new year.
 
The sign-up period for the new ACRE program is less clear, with USDA saying producers could begin signing up sometime this spring. The Department said it will provide 2009 ACRE revenue guarantees based off of 2007-2008 crop year data; this time period was favored by many farm groups, but had been a serious point of contention when commodity prices were high. Producers who choose to take part in ACRE will be in the program for the entire life of the 2008 Farm Bill.
 
USDA also published an interim final rule in the Federal Register outlining changes to adjusted gross income (AGI) requirements; payment limits; and the definition of actively engaged participants in a farm operation.
 
The portion of the rule that has raised the most questions is that which specifies that program payments must be directly attributed to individuals or entities "actively engaged in farming," defined as making significant contributions of capital, equipment, land or a combination AND personal labor or active personal management, or a combination. Under rules in effect since 1988, not every member of an entity had to contribute active personal labor or management.
 
The USDA release said, "The interim final rule requires each partner, stockholder or member with an ownership interest to make a contribution of active personal labor or active personal management. The contribution must be regular and substantial, and documented as well as separate and distinct from any other member's contribution. The rule limits the ability of passive stockholders to continue to realize benefits from the entity."